In January this year, the first spot-based bitcoin ETFs unleashed billions of institutional dollars, finally providing an investment vehicle for the largest cryptocurrency. Nine months after their launch, the onrush shows few signs of slowing down. In the past three trading days, $1.2 billion has flowed into bitcoin ETFs.
Exchange-traded funds, or ETFs, are investment funds that trade on exchanges much like individual stocks. They hold a variety of assets, such as stocks, bonds or commodities, and offer investors an easy way to diversify their portfolios with lower fees. In the case of bitcoin, the ETFs approved in January this year allowed mainstream investors in the U.S. to invest in the space for the first time through a regulated, traditional financial instrument. Investors are taking advantage of this opportunity, as evidenced by the recent inflows into these funds.
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Nearly $20 billion in total inflows
After reaching a milestone of $10 billion in net inflows into bitcoin ETFs just two months after their launch, flows have calmed down somewhat. Aside from a few strong days, the summer slump put pressure on the products. From July to September, bitcoin ETFs actually lost $1 billion in assets under management (AUM). However, the lower bitcoin prices offered investors a new entry point, which ETF investors apparently took advantage of.
Breakdown of US spot Bitcoin ETF (USDm) flows / Source: CVJ.CH Bitcoin ETF Flows
With three days of net inflows in the hundreds of millions, the products are close to breaking the $20 billion mark. Thanks to the pre-existing funds in the Grayscale Bitcoin ETF (GBTC) and the significant price increase since its approval, the ETFs now manage over $63 billion. The lion's share is held in the funds of financial titans BlackRock and Fidelity, as well as crypto specialist Grayscale's decade-old product. For comparison: Gold ETFs in the US manage a total of about $125 billion.
No interest in Ethereum
Despite the rush into bitcoin ETFs, investors are showing no interest in the exchange-traded funds on the second-largest cryptocurrency, Ethereum (ETH), which were approved in July. The launch of these ETFs was already disappointing. Within the first few days, billions flowed out of the grayscale product. Inflows into the BlackRock & Co. funds largely failed to materialize. After one week, net flows were -$511 million. There has been no recovery since.
Breakdown of US spot Ethereum ETF (USDm) flows / Source: CVJ.CH Ethereum ETF Flows
On the contrary, interest in the second largest cryptoasset is so low that some days there are neither inflows nor outflows. The relatively weak performance can be attributed to several factors. On the one hand, Ethereum's value proposition is much more complex than the "digital gold" narrative. In addition, the scaling strategy via layer 2 solutions has proven to be a double-edged sword. As activity is offloaded to various blockchains, users require less ether (ETH) to execute transactions. As a result, Ethereum's total fee revenue is at a multi-year low, despite strong activity on Layer-2 networks such as Base, Arbitrum and Optimism.
Daily income through fees of the Ethereum Blockchain since 2020 / Source: Artemis
